9.23 Standard Costing.handout.

inclass
LO2 Preparing a Flexible Budget
SE 5. Prepare a flexible budget for 10,000, 12,000, and 14,000 units of output,
using the following information:
Variable costs
Direct materials $10.00 per unit
Direct labor $3.00 per unit
Variable overhead $5.00 per unit
Total budgeted fixed overhead $80,800
LO2 Flexible Budgets and Performance Evaluation
P 7. Cassen Realtors, Inc., specializes in the sale of residential properties. It earns
its revenue by charging a percentage of the sales price. Commissions for sales
persons, listing agents, and listing companies are its main costs. Business has
improved steadily over the last 10 years. Bonnie Cassen, the managing partner of
Cassen Realtors, receives a report summarizing the companys performance each
year. The report for the most recent year appears below.
Cassen Realtors, Inc.
Performance Report
For the Year Ended December 31
Difference
Budget Actual

Under (Over)
Budgeted*
Total selling fees $2,052,000 $2,242,200 ($190,200)
Variable costs
Sales commissions $1,102,950 $1,205,183 ($102,233)
Automobile 36,000 39,560 (3,560)
Advertising 93,600 103,450 (9,850)
Home repairs 77,400 89,240 (11,840)
General overhead 656,100 716,970 (60,870)
$1,966,050 $2,154,403 ($188,353)
Fixed costs
General overhead 60,000 62,300 (2,300)
Total costs $2,026,050 $2,216,703 ($190,653)
Operating income $ 25,950 $ 25,497 $ 453
*Budgeted data are based on 180 units sold.

Actual data for 200 units sold.

Required
1. Analyze the performance report. What does it say about the companys
performance? Is the performance report reliable? Explain your answer.
2. Calculate the budgeted selling fee and budgeted variable costs per home
sale.
3. Prepare a performance report using a flexible budget based on the actual
number of home sales.
LO3 Direct Materials Price and Quantity Variances
E 5. SITO Elevator Company manufactures small hydroelectric elevators with a
maximum capacity of ten passengers. One of the direct materials used is heavy-
duty carpeting for the floor of the elevator. The direct materials quantity standard
for April was 8 square yards per elevator. During April, the purchasing agent
purchased this carpeting at $11 per square yard; the standard price for the period
was $12. Ninety elevators were completed and sold during the month; the
Production Department used an average of 8.5 square yards of carpet per elevator.
Calculate the companys direct materials price and quantity variances for carpeting
for April.
LO3 Direct Materials Variances
E 6. Diekow Productions manufactured and sold 1,000 products at $11,000 each
during the past year. At the beginning of the year, production had been set at 1,200
products; direct materials standards had been set at 100 pounds of direct materials
at $2 per pound for each product produced. During the year, the company
purchased and used 98,000 pounds of direct materials; the cost was $2.04 per
pound. Calculate Diekow Productions direct materials price and quantity
variances for the year.

LO4 Direct Labor Variances
E 7. At the beginning of last year, Diekow Productions set direct labor standards
of 20 hours at $15 per hour for each product produced. During the year, 20,500
direct labor hours were actually worked at an average cost of $16 per hour. Using
this information and the applicable information in E 6, calculate Diekow
Productions direct labor rate and efficiency variances for the year.

LO4 Direct Labor Rate and Efficiency Variances
E 8. NEO Foundry, Inc., manufactures castings that other companies use in the
production of machinery. For the past two years, NEOs best-selling product has
been a casting for an eight-cylinder engine block. Standard direct labor hours per
engine block are 1.8 hours. A labor union contract requires that the company pay
all direct labor employees $14 per hour. During June, NEO produced 16,500
engine blocks. Actual direct labor hours and costs for the month were 29,900
hours and $433,550, respectively.
1. Compute the direct labor rate variance for eight-cylinder engine blocks
during June.
2. Using the same data, compute the direct labor efficiency variance for eight-
cylinder engine blocks during June. Check your answer, assuming that the
total direct labor cost variance is $17,750 (U).

LO5 Variable Overhead Variances
E 9. At the beginning of last year, Diekow Productions set variable overhead
standards of 10 machine hours at a rate of $10 per hour for each product produced.
During the year, 10,800 machine hours were used at a cost of $10.20 per hour.
Using this information and the applicable information in E 6, calculate Diekow
Productions variable overhead spending and efficiency variances for the year.

LO5 Fixed Overhead Variances
E 10. At the beginning of last year, Diekow Productions set budgeted fixed
overhead costs at $456,000. During the year, actual fixed overhead costs were
$500,000. Using this information and the applicable information in E 6, calculate
Diekow Productions fixed overhead budget and volume variances for the year.
Assume that fixed overhead is applied based on units of product.
LO5 Overhead Variances
SE 8. Weatherall Products uses standard costing. The following information about
overhead was generated during August:
Standard variable overhead rate $3.00 per machine hour
Standard fixed overhead rate $3.10 per machine hour
Actual variable overhead costs $680,100
Actual fixed overhead costs $698,800
Budgeted fixed overhead costs $700,000
Standard machine hours per unit
produced
12
Good units produced 18,940
Actual machine hours 228,400
Compute the variable overhead spending and efficiency variances and the fixed
overhead budget and volume variances.
LO5 Overhead Variances
E 13. Cedar Key Company produces handmade clamming buckets and sells them
to distributors along the Gulf Coast of Florida. The company incurred $9,400 of
actual overhead costs ($8,000 variable; $1,400 fixed) in May. Budgeted standard
overhead costs for May were $4 of variable overhead costs per direct labor hour
and $1,500 of fixed overhead costs. Normal capacity was set at 2,000 direct labor
hours per month. In May, the company produced 10,100 clamming buckets by
working 1,900 direct labor hours. The time standard is 0.2 direct labor hour per
clamming bucket. Compute (1) the variable overhead spending and efficiency
variances and (2) the fixed overhead budget and volume variances for May.
LO5 Overhead Variances
E 14. Suncoast Industries uses standard costing and a flexible budget for cost
planning and control. Its monthly budget for overhead costs is $200,000 of fixed
costs plus $5.20 per machine hour. Monthly normal capacity of 100,000 machine
hours is used to compute the standard fixed overhead rate. During December,
employees worked 105,000 machine hours. Only 98,500 standard machine hours
were allowed for good units produced during the month. Actual overhead costs
incurred during December totaled $441,000 of variable costs and $204,500 of
fixed costs. Compute (1) the under- or overapplied overhead during December and
(2) the variable overhead spending and efficiency variances and the fixed
overhead budget and volume variances.